OECD publishes welcome guidance on COVID-19 and Permanent Establishments, Corporate (Tax) Residence and Personal Tax

David McDonald Partner and Leader FSTP PwC Europe, PwC Switzerland 08 Apr 2020

On 3 April 2020, the OECD published an analysis suggesting that work-from-home arrangements arising from COVID-19 will not lead to the recognition of Permanent Establishments ('PEs'), nor to a change of corporate (tax) residence nor individual tax residency. These are welcome findings.  

The OECD paper entitled «OECD Secretariat Analysis of Tax Treaties and the Impact of Covid-19 Crisis» comes at exactly the right time and is a very positive initiative by the OECD.   

The key suggestions that the OECD makes are:  

  • Fixed place of business PE: A fixed place of business PE will not be recognised because of individuals working from home outside their jurisdiction of employment because the arrangements are temporary, exceptional and the result of government actions outside of the control of the employer.
  • Agency PE: Even the signing of contracts by employees will not lead to the creation of a PE during the COVID-19 crisis.
  • Corporate (tax) residence: A temporary change in the location of senior executive officers should not trigger a change in residency, especially once the tie breaker rule contained in tax treaties is applied.  This is because the change is the result of an extraordinary and temporary situation arising from COVID-19 crisis.
  • Cross-border commuters/workers: Employment income should be attributable to the place where the employment used to be exercised, i.e., the state where the employees used to be physically present when performing the activities for which the employment income is paid.
  • Personal tax implications: Due to temporary nature of this extraordinary circumstances, the residence position of an individual should not change in most cases when the tie-breaker-rule is applied; also in cases where domestic rules of the current country of presence may consider the individual a tax resident.


Whilst the OECD analysis is extremely welcome, a few notes of caution should be sounded:  

  • The analysis is not binding and individual tax authorities may disagree with this analysis.
  • The findings are not direclty relevant to the question of whether a PE/residence change/individual's residence may have to be recognised under domestic law (e.g. in the absence of a treaty).
  • The OECD analysis does not take into consideration that many senior employees have more than one house and may have decided to spend the lock-down period in a holiday home outside of their jurisdiction of employment (even though that was not required).
  • The OECD conclusions will change if staff members were already working from home, or signing contracts, outside of their employment jurisdiction before the Covid-19 lock downs began.  If that is not the case then the conclusions of the guidance will not apply.
  • Similarly the guidance on corporate residence assumes that it is clear where board meetings/senior management were taking place before the Covid-19 disruptions began.  This will be true for most groups but not necessarily all.  
  • Cross-border commuters/workers: The guidance highlights the consideration of special provisions in bilateral treaties that deal with the situation of cross-border workers and accordingly the special treatment to their employment income. For instance, Switzerland has different cantonal regulations for French cross-border commuters. For the cantons of Berne, Basel-Stadt and Basel-Landschaft, Jura, Neuchâtel, Solothurn, Vaud and Valais, the double tax treaty states that French cross-border commuters are taxed exclusively in their country of residence (France) and not in the country where the employment used to be exercised (Switzerland). In contrast, French cross-border commuters in the canton of Geneva are always taxed at source.
    Please see here more details on the perspectives for cross-border commuters France-Switzerland.
  • The general rules regarding the taxation of income from employment are still applicable. Taxation rights may shift from the original country of work to the country of work during the lock down. Employer obligations as well as tax costs to the individual may therefore be affected nevertheless.
  • Personal circumstances and behaviour prior to and after the lock down also need to be taken into consideration.


This is a hugely welcome publication from the OECD and significantly reduces the PE/residence/personal tax risk arising from COVID-19. Nonetheless all heads of tax should continue to monitor where employees are currently based and should review the position periodically, particularly if travel restrictions continue for a long time and/or if corporate/cultural norms change after the end of the lock-down and home-working significantly expands (as seems likely).  Groups that have not previously been disciplined on residence/PE matters should not take too much comfort from the OECD analysis and should review their position.  


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David McDonald

David McDonald

Partner and Leader FSTP PwC Europe, PwC Switzerland

Tel: +41 75 413 19 10

Begga Sigurdardottir

Begga Sigurdardottir

Tax Partner, PwC Switzerland

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Hans Geene

Hans Geene

Partner, People and Organisation, PwC Switzerland

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Armin Marti

Armin Marti

Partner and Leader Tax Policy, PwC Switzerland

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